Canada: The Impact Of High Personal And Corporate Tax Rates

Last Updated: June 22 2017
Article by Kim G.C. Moody

Recently, I had the honour and pleasure of speaking at one of Canada's premier tax and estate planning conferences. While listening to some of the sessions, a number of speakers commented on Canada's high tax rates as well as Alberta's tax rate increases and compared such resulting top rate (48% on ordinary income) to Ontario's rate (almost 54% on ordinary income). It was clear from the various updates that there was little sympathy for Albertans who gripe about the large rate increases in such a short period of time given the fact that there are other provinces with higher rates. This theme irritated me for reasons I will explain below.

Income tax rates and the impact they have on overall economic behaviour is a surprisingly complex subject involving economics, tax policy, and psychology. When discussing tax rates, some commentators often point out that Alberta has the lowest tax rates in the country – even after the increases. Well, not quite true (BC and some territories have lower rates) but fine... you win on that shallow comparison. They may also point out that Canada's tax rates are low by historical standards. In fact, in 1971, Canada's highest personal income tax rate was 80%! Is the 1971 tax rate a justification for today's rates? No. 1971 was a very different time from today. Back then, eye-popping top marginal tax rates were common amongst countries. In addition, it should be pointed out that the 80% top rate in 1971 did not kick in until the marginal rate bracket was $400,000, which is equivalent to about $2,500,000 in today's dollars when adjusted for inflation. Comparatively, the Alberta top marginal rate today starts applying for income over $300,000. Another important point to recall is that countries, including Canada, had tax regimes that were much less robust and less broad than today, so it was relatively easy for businesses and high net worth individuals to plan their affairs to minimize their income; not so easy today as tax legislation and enforcement has become much, much tighter (and rightly so).

With the recent rise of left-leaning federal and provincial governments in Canada, the temptation to increase tax rates has been hard to resist. The tables below show the reversal of historical tax rate decreases both personally and corporately.

Highest Personal Tax Rates on Ordinary Income

1996 2014 2016
Ontario 52.92% 49.53% 53.53%
Alberta 45.58% 39.00% 48.00%
California 45.22% 45.22% 45.22%
Texas 39.60% 39.60% 39.60%

General Corporate Rates

1996 2014 2016
Ontario 44.62% 26.50% 26.50%
Alberta 44.62% 25.00% 27.00%
California 41.05% 40.75% 40.75%
Texas 35.00% 35.00% 35.00%

A quick review of the above tables reveals two obvious observations. In the span of two years, Canada has managed to reverse course on personal tax rates and bring us back to personal tax rates that are higher than they were 20 years ago! The second observation is that Canada's corporate rates are rather low compared to the United States. However, the low corporate rate tax rate that Canada has used favourably to attract business and capital is likely to be short-lived given the new US administration's commitment to dramatically reduce US corporate rates. While it is anyone's guess when such reductions might ultimately come to pass, there have been speculations about proposals to reduce such rates to a low of 15% and a high of 25%. Even on the high side, this would compare favourably to many Canadian provinces.

The consistent message from the Federal and Alberta government is that the rich need to " a little bit more" (even as recently as yesterday in the House of Commons when the Prime Minister boasted about his government implementing tax rate increases to tax "the 1%" more). Apparently, if you make $200-$300K of personal income, you're rich. But what if you have a lot of capital at risk in order to make such income? Are you still rich? Depends on your point of view I guess. From my point of view, entrepreneurs are special people. They often risk much of their wealth to chase their passion and along the way create jobs and hopefully get a decent rate of return on their investments. Is such risk worth taking if they are subjected to high personal and corporate rates that reduce their overall rates of return?

In a blog posting about Alberta's tax rate increases in 2015, I stated: "...we are concerned that the policy foundations may negatively affect Alberta's resource, technology, innovation and entrepreneurial sectors." I'm obviously no economist and therefore not qualified to comment on the impact that tax rate increases have on the overall elasticity of the Canadian economy. What I am, however, is a tax practitioner who advises entrepreneurs and investors and I'm often on the front end of planning to deploy capital into Canada and specifically, Alberta. Accordingly, my 2015 comment was made as a practitioner concerned that Alberta's economy would be negatively affected by such tax rate increases. I was also concerned about the compounding impact of low oil and gas revenues which Alberta depends greatly upon.

Since 2015, our firm has seen a dramatic reduction of capital coming into Alberta and Canada. Why? The lingering low oil and gas prices are obviously one of the main reasons, but tax rate increases have certainly contributed to this reduction which, overall, has resulted in an unfriendly investor environment. (I'll resist the urge to comment on other non-tax matters that have contributed to this environment). The analogy I like to use is that of a garden. If the garden is properly tilled, fertilized, weeded, watered and cared for, then properly planted seeds will often thrive. If one or more of those elements are removed, then the seeds may not thrive like they once did. And ultimately, such seeds would likely thrive in another garden that has all of those good elements. This is what is happening in Alberta.

The capital that once thrived in Alberta's garden is now fleeing to better gardens. In addition to being on the front-end of capital not being deployed in Alberta, our firm is also on the front-end of capital leaving Alberta and Canada. When large foreign corporations leave Canada – like many have done recently in divesting themselves of their oil sands interests – such news often hits the front pages of the newspapers. What does not hit the newspapers is when entrepreneurs or wealthy individuals leave Canada.

I have been practicing tax for about 23 years. Over my career, I have been involved in many client scenarios where individuals desire to become non-residents of Canada and I have helped them deal with the resulting tax issues. Without a doubt, over 95% of such cases that I have worked on historically were the result of lifestyle choices. In other words, virtually all of the cases involved entrepreneurs and families that simply wanted to live permanently outside of Canada for non-tax reasons.

When Canadian resident individuals become non-residents of Canada, they are subjected to Canada's "departure tax". Overly simplified, paragraph 128.1(4)(b) of Canada's Income Tax Act will deem such an individual to have disposed of all of their worldwide assets at the fair market value thereof at the time of becoming a non-resident. Any resulting gains are therefore taxable. There are a number of exceptions to the departure tax but such exceptions are narrow with the idea being that such assets/deferred income will eventually be subject to Canadian taxation.

In the last 20 months or so, our firm has been involved in many departure tax planning assignments for entrepreneurs and other individuals. The number of such assignments equates to approximately 20 times the number of assignments that I have previously worked on in my entire career. The aggregate dollar value of such recent projects is very significant. While such assignments are fascinating and provide a great intellectual challenge, I am personally saddened every time I work on a departure tax plan since great assets – both the individuals and the dollars – are now not available for Canada. Canada needs great entrepreneurs and investment. Why the dramatic increase in departures? Without question, the reason has been tax rate increases with such individuals looking elsewhere to deploy their capital in a much better tilled, fertilized, weeded, watered and cared for garden.

Where has most of the capital gone to in our planning assignments? Most of it has gone to the US, some to Europe and some to other countries. If the US is successful in actually reducing its corporate or personal tax rates, I fully expect the frequency and magnitude of such departures to accelerate. In addition, if the private corporation consultation study that the Department of Finance announced in its recent federal budget deploys measures that further attack entrepreneurs (which it certainly sounds like such attacks are coming), then I expect such measures will add fuel to this departure trend. As economists and investment bankers often trumpet, capital is mobile and unemotional. It will go to where it can receive greater returns. When I discuss some of these issues with my left-leaning friends, the usual response to my griping is "well, let them leave then... Canada is a great country." Yes, I agree that Canada is a great country but to "let them leave" is not the proper solution for our society. Such individual and monetary assets are not easily replaceable.

Alberta's per capita GDP has consistently been the highest of all provinces in Canada and is one of Canada's most important economic engines. It is a "have" province that has consistently contributed by way of transfer payments to the "have not " provinces. On balance, Alberta's success has been due to its resource rich assets and friendly policies for entrepreneurs – including lower and competing tax rates – to deploy their assets in Alberta's gardens. While I'm confident that better times will return to Canada and Alberta (which higher oil and gas prices will certainly help), Canada needs to protect its assets. Taxing such assets out of existence does not help. And suggesting that Alberta has nothing to complain about when comparing its overall tax rates to other provinces doesn't help either (although I certainly am sympathetic to a 54% top tax rate in Ontario which I find outrageous).

I'm optimistic some sanity will ultimately be restored to Canada's overall tax rates so as to make our gardens fertile once again for entrepreneurs and investors.

Moodys Gartner Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients' special circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Kim G.C. Moody
Events from this Firm
27 Jan 2018, Seminar, Toronto, Canada

On Saturday, January 27, 2018, Moodys Gartner Tax Law will present a complimentary seminar on the main topics of interest concerning the renunciation of your US citizenship and how your decision might affect you.

2 Feb 2018, Seminar, Calgary, Canada

On December 22, 2017, the United States passed into law the Tax Cuts and Jobs Act. The new law is incredibly complex and will have a dramatic impact on Americans who reside in Canada and for Canadians who have direct or indirect investments or other ties to the US.

10 Feb 2018, Seminar, Calgary, Canada

On Saturday, February 10, 2018, Moodys Gartner Tax Law will present a complimentary seminar on the main topics of interest concerning the renunciation of your US citizenship and how your decision might affect you.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions